A key reason for the stagnant growth in retail is that stores are still trying to work in an aspirational way long after consumers have ditched their pre-recession values to become more experiential.
That was the takeaway from a presentation by NPD chief industry analyst Marshal Cohen at last month’s Shoptalk conference in Las Vegas.
In a session titled, “Data that Demonstrates How the Aspirational Purchase Has Shifted,” Cohen said traditional retail has stopped growing mainly because it’s built on an old model.
“Before the recession, we would covet all these great items,” he told the standing-room-only crowd at the Aria hotel. “Women were out there buying three-, four- and five-hundred dollar handbags.”
He was referring, of course, to the practice of spending disproportionately to income in order to appear affluent. Consumers back then were in a dress rehearsal for the day they would be able to afford luxury goods. And why not? Leading up to the recession, money—and credit—were easy to come by. Shopping became the way that consumers played out their dreams, not necessarily their reality.
Today, U.S. consumers behave differently. Older ones have become hooked on the discounts that retailers offer to drive sales growth. Millennials, who came of age during the recession, had the traumatic experience of seeing their parents lose their jobs and savings, so were frugal from the start.
“As the economy recovered, retailers went back to trying to sell to the aspirational mindset. But consumers stayed value-centric and practical,” Cohen said.
Luxury brands have been toppled off their former pedestals. Data from NPD’s Checkout Tracking service, which harvests big data from millions of consumer shopping receipts, shows that of the top 10 most expensive brands, eight saw declines in 2016, six of which were down by double digits.
Consumers love to find great deals on high-end product, however. The service found that more than three-quarters of all consumers today shop in off-price stores, with apparel a key category.
Seeking extreme value on basic goods has become a pastime even for the affluent. A full 20 percent of the business done by dollar stores is coming from households with annual incomes above $100k. Millennials with incomes above this threshold made purchases at dollar stores at a rate higher than average.
Experience over stuff
Commenting on the “experiential” nature of everyone’s favorite new target audience, Millennials, Cohen said, “They’d rather build memories than wardrobes.”
Some of the hardest hit categories in the past several years have been the blatantly aspirational jewelry and handbags. However, luggage is doing better, as post-aspirational consumers are willing to spend on nice luggage to facilitate or enhance a travel experience. NPD’s data shows that handbag sales fell 8 percent last year, while luggage sales rose 4 percent.
And despite their frugality, Millennials are willing to invest in authenticity. They are not interested in looking like someone else; they want to look and act like the truest version of themselves. For this they will spend a little more, said NPD’s Cohen. “Value isn’t just the lowest price, it’s the best product.”
The signature item
These young consumers are putting their money and effort in what Cohen called the “signature item,” a consumer good that serves as the focal point of how they want to be seen.
A signature item may be a one-of-a-kind coat purchased from an obscure brand that becomes the central theme of one’s entire wardrobe, or the pair of vintage collectible sneakers. It is ideally unique, or at least scarce, not a mass-produced, available-everywhere item.
The signature item also requires a careful, multi-step selection process. A recent study by NPD found that over 40 percent of Millennial consumers surveyed said they started thinking about their most recent handbag purchase more than a month in advance.
Above all, the item also must have photographic appeal. Its purpose is as much about being seen on social media as it is to be used.
In years past, according to Cohen, designers would set the trends, but now consumers are creating their own trends.
“Today the consumer’s favorite brand is herself,” Cohen said.